Reliance better without Lyondell-Basell – Goldman

February 19, 2010

As Lyondell-Basell (LB) announced that it has reached a settlement with unsecured lenders for a consideration of US$450mn, will aid the company to emerge from Chapter 11 bankruptcy. LB acquisition does have strategic merit for RIL, but the bid not going through would be a better outcome than RIL getting drawn into a bidding war and eventually over-paying for the assets.

Mukesh Ambani’s Thirst for Inorganic Growth – RIL will look to pursue inorganic growth, since see no major projects lined up to consume excess cash (after committed capex) of US$25bn that RIL will likely generate between FY11E-14E. RIL has already expressed interest for the oil sands assets of Value Creation Inc. One must keep an eye on the price that RIL is willing to pay to grow and whether that harms its improving cash returns profile.

Goldman expects RIL to report an EPS of Rs 57 and Rs 79 for Fy10 and FY11 respectively with a BUY rating on the stock and a target price of Rs 1,200.

On a side-note, Reliance and Mukesh Ambani always wants to occupy the Numero Uno slot of Industrialists in India. Can you recall how Wipro share slipped from Rs 10,000 to Rs 5,000 in 2000 as Azim Premji pipped the mighty Dhirubhai ? So this time, Airtel’s Mittal has emerged to threaten Ambani’s position with Global Telecom Services Ambition backed by SingTel and a much better professionally managed Executive team. Will be interesting to watch Ambani’s next move.